If you have credit cards, you’ve probably been receiving new ones in the mail that look different than the old ones.
The reason for the makeover is that there’s a major change rolling out this year that requires every customer’s card to have it’s own embedded microchip.
In this episode I’ll give an overview of the new chip technology, how it affects the way you use your card, and whether it will really keep you safe from fraud.
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Why Are Credit Cards Changing to EMV Chip Technology?
Did you know that the U.S. has had the most credit card fraud in the world over the last 5 years? We only make up 24% of all credit card sales, but we’re responsible for nearly 50% of fraud worldwide!
One of the reasons we get hacked is because our credit card processing technology is a dinosaur compared to other countries. The problem with old-school, magnetic-stipe cards is that they contain static data that can be easily cloned.
Some of the huge retail scandals, like the one with Target, have shined a bright light on our vulnerability, putting pressure on the card industry to make sweeping changes—and fast. Thankfully, the hammer is coming down this year and the U.S. payment system will be forced to take a big step forward.
EMV cards use a unique process that determines if the card is authentic, which makes it more difficult to counterfeit or copy.
What Are EMV Credit Cards With Chip Technology?
As of October 1, 2015, the new global standard for credit cards is called EMV, which is short for its developers: Europay, MasterCard, and Visa. It’s a more secure system that uses a computer chip to transmit your information.
EMV-enabled credit cards are known as chip cards or smart cards and they’ve been around since 2002. EMV technology is being used in over 130 countries, such as in Europe, Asia, and South America, to help prevent fraud.
Unlike magnetic-stripe cards, chip cards use a new encryption for every sale. They transmit a variable algorithm with each transaction that’s much more resistant to fraud. EMV cards use a unique process that determines if the card is authentic, which makes it more difficult to counterfeit or copy.
See also: How to Use a Balance Transfer Card to Get Out of Debt
What Chip Cards Mean for Merchants
The reason it’s taken the U.S. so long to join the smart card party is because it’s expensive for both credit card issuers and merchants who must produce new cards and buy upgraded equipment.
However, there’s a huge incentive for merchants to make the investment in EMV-enabled terminals that can read smart cards. With the pre-EMV system, credit card issuers bear the burden of fraudulent charges.
But after October 1, if a merchant doesn’t have a smart card terminal, they’ll be liable for fraud—not the card issuer.
Merchants can either upgrade their system and eliminate risk, or use their old terminal and be on the hook if someone pays with a lost or stolen credit card.
So, issuers are furiously producing and mailing out millions of chip cards and merchants are getting bombarded with new rules and offers to purchase EMV-compliant equipment.
See also: 3 Top Online Banks and 8 Banking Security Tips
What Chip Cards Mean for Consumers
How do these changes affect consumers? As I mentioned, you’ll be receiving new credit cards in the mail and you’ll see new types of terminals in stores. Large retailers will be the first to adopt them and smaller merchants will get on board over the next few years.
Most of the new credit cards will incorporate multiple technologies: a traditional magnetic stripe, a contact EMV chip, and a contactless NFC chip. Here’s how they work:
Magnetic stripes will continue to work the way they always have, when a merchant hasn’t upgraded to a chip-enabled terminal.
EMV Chip technology will require you to insert your card, chip-side up into the terminal and follow on-screen prompts. The chip adds a unique, one-time code that gives you extra protection.
NFC Chip technology is near-field communication, which allows you to wave your card close to a terminal reader without having to make contact with it. This is the magic behind products like Apple Pay and Google Wallet. The EMV chip will still create a unique code giving you extra security at checkout.
To complete your transaction, you’ll typically have to sign. Eventually, we’ll catch up with other countries that use “chip and PIN” card technology, which is safer. It requires a personal identification number, just like you must enter today for debit card purchases.
See also: 6 Risky Situations When You Should Avoid Using a Debit Card
How Chip Cards Affect Online Purchases
Unfortunately, using an EMV chip card doesn’t make online fraud go away. In fact, it could get worse as criminals are shut out of common counterfeit scams like skimming and cloning physical cards to make purchases.
Having a more secure in-store shopping experience is great—but what about using chip cards for online purchases?
Unfortunately, using an EMV chip card doesn’t make online fraud go away. In fact, it could get worse as criminals are shut out of common counterfeit scams like skimming and cloning physical cards to make purchases.
So, you still need to monitor your financial accounts on a consistent basis to spot and report fraudulent activity right away. Also keep an eye on your credit accounts using free services like:
Credit Karma
Quizzle
Credit Sesame
Annualcreditreport.com
The new EMV cards won’t eliminate fraud completely, but they offer new layers of security that are much safer than the magnetic-stripe cards we’ve been using.
Another benefit is that you’ll be able to use your chip cards more widely when traveling overseas because international merchants prefer them.
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